Africa: why western economists get it wrong

Development economics as a field of study was formally launched in the 1950s by the Afro-Caribbean economist Arthur Lewis who, out of necessity, wanted to understand how his own country, Saint Lucia, could transform from an agro-based economy into a modern industrial state (later, in 1979, Lewis was awarded the Nobel Memorial Prize in Economics for this work, the only black person to have won the prize to date). For Lewis, the key to providing a satisfactory answer to the problem of underdevelopment lay in studying those societies as they were and not in comparing them to some mythical ideal. Saint Lucia, like all developing countries, had a lot of underemployed labor in its agricultural sector. The question was how best to marshal this valuable resource into driving industrialization.

Sadly, development economics has moved away from Lewis’ pioneering contribution of studying poor countries on their own terms. For example, today’s development economists explain Tanzania’s lack of development as stemming from its inability to be more like Sweden. This way of studying development, termed the “subtraction approach”, has led us down a dark alleyway where there is more confusion than elucidation. That, at least, is the charge leveled by economic historian Morten Jerven in his book Africa: Why Economists Get It Wrong published in 2015, but still circulating and prompting debate in academia and amongst practitioners.

Aided by the revolution in computing power and by the supposed triumph of neoliberal thinking, a certain type of influential development economics arose in the 1980s whose dominant methodological approach was the compilation of cross-country datasets for the purposes of statistical analyses. These studies, termed the “first generation growth literature” by Jerven, set out to show that economic growth depended on a standard set of globally relevant factors. For instance, government involvement in the economy was hypothesized to be a key factor explaining why poor countries had grown slowly, betraying the extent to which the ideological currents of the time influenced economic research.

Jerven shows that much of this research was flawed at a conceptual level. First, the data for most African countries was collected at a time when their economies were in crisis. This data was therefore not a typical representation of how these economies functioned in normal times. If anything, the data were an outcome and not the cause of the crisis. Second, the data for industrialized countries was reverse-engineered into the models to fit the story. For example, industrialized countries would automatically be presumed to have zero government involvement in the economy even though this was not the case (subsidies to US and European farmers, anyone?). Lastly, the economists working in the 1980s and 1990s were trying to explain a “chronic failure of growth in Africa”, something that had not happened in reality. African economies grew healthily in the 1960s and 1970s and did not grow at all in the 1980s and 1990s.

As a way of rescuing this literature from its conceptual malaise, a new literature arose in the early 2000s. This literature claimed that the answers to Africa’s failure to implement good policies (read: failure to be more like Sweden) were to be found in history. The continent was “trapped in history”.

The most famous account of the “history matters” school was a 2001 scholarly article by economists Daron Acemoglu, Simon Johnson and James Robinson. The article argued that the reason why African countries relied on “extractive institutions” today, such as unsecure property rights, was related to patterns of colonization in history. Because Africa was not “conducive” for settlement, Europeans introduced institutions that would facilitate the extraction of natural resources. Elsewhere, such as Canada and Australia, they introduced “inclusive institutions” precisely because these places were conducive for their settlement.

Quite apart from the hubris contained in thinking that the universe of institutional types was only to be found in historical Europe, Jerven levels a series of conceptual criticisms at the “history matters” school. If Africa is “trapped in history” and, therefore, condemned to a perpetual lack of growth, how is it that the continent grew rather spectacularly in the 1960s, 1970s and more recently in the 2000s? Even more damning, Jerven shows that growth in Africa has been a recurring phenomenon over the last 400 years. So a theory that tells us that a single historical event explains Africa’s slow growth today doesn’t take us far. We want to know why Tanzania has grown, slowed down, grown and then slowed down again throughout its history.

Sadly, the “history matters” school is very influential. Ask any member of the thinking class to tell you why Africa is poor and they will likely refer you to Why Nations Fail, the 2013 book that summarized Acemoglu et al.’s work.

So what’s to be done? Jerven thinks development economics should engage more historians given their unique skills for interrogating historical data sources and narratives. This is welcome. Surprisingly, Jerven does not call for the active engagement of African economists given that most of what he critiques has been authored by North American and European economists (his book should really have been titled Africa: Why Western Economists Get It Wrong). This oversight is telling because his critique clearly builds on the often neglected contributions of the Malawian economist Thandika Mkandawire.

This last pickle aside, Morten Jerven’s book is a refreshing contribution to the debate about development scholarship on Africa and it deserves to be read by all.